We discuss - in what is intended to be a pedagogical fashion - generalized
"mean-to-risk" ratios for portfolio optimization. The Sharpe ratio is only one
example of such generalized "mean-to-risk" ratios. Another example is what we
term the Fano ratio (which, unlike the Sharpe ratio, is independent of the time
horizon). Thus, for long-only portfolios optimizing the Fano ratio generally
results in a more diversified and less skewed portfolio (compared with
optimizing the Sharpe ratio). We give an explicit algorithm for such
optimization. We also discuss (Fano-ratio-inspired) long-short strategies that
outperform those based on optimizing the Sharpe ratio in our backtests.
%0 Generic
%1 kakushadze2017notes
%A Kakushadze, Zura
%A Yu, Willie
%D 2017
%K quantfinance
%T Notes on Fano Ratio and Portfolio Optimization
%U http://arxiv.org/abs/1711.10640
%X We discuss - in what is intended to be a pedagogical fashion - generalized
"mean-to-risk" ratios for portfolio optimization. The Sharpe ratio is only one
example of such generalized "mean-to-risk" ratios. Another example is what we
term the Fano ratio (which, unlike the Sharpe ratio, is independent of the time
horizon). Thus, for long-only portfolios optimizing the Fano ratio generally
results in a more diversified and less skewed portfolio (compared with
optimizing the Sharpe ratio). We give an explicit algorithm for such
optimization. We also discuss (Fano-ratio-inspired) long-short strategies that
outperform those based on optimizing the Sharpe ratio in our backtests.
@misc{kakushadze2017notes,
abstract = {We discuss - in what is intended to be a pedagogical fashion - generalized
"mean-to-risk" ratios for portfolio optimization. The Sharpe ratio is only one
example of such generalized "mean-to-risk" ratios. Another example is what we
term the Fano ratio (which, unlike the Sharpe ratio, is independent of the time
horizon). Thus, for long-only portfolios optimizing the Fano ratio generally
results in a more diversified and less skewed portfolio (compared with
optimizing the Sharpe ratio). We give an explicit algorithm for such
optimization. We also discuss (Fano-ratio-inspired) long-short strategies that
outperform those based on optimizing the Sharpe ratio in our backtests.},
added-at = {2017-12-14T08:02:42.000+0100},
author = {Kakushadze, Zura and Yu, Willie},
biburl = {https://www.bibsonomy.org/bibtex/25c6d30705e2322e7eafbdf1c56e2963d/shabbychef},
description = {Notes on Fano Ratio and Portfolio Optimization},
interhash = {46d128976f3f086feb363f4bc454f3b9},
intrahash = {5c6d30705e2322e7eafbdf1c56e2963d},
keywords = {quantfinance},
note = {cite arxiv:1711.10640Comment: 29 pages},
timestamp = {2017-12-14T08:02:42.000+0100},
title = {Notes on Fano Ratio and Portfolio Optimization},
url = {http://arxiv.org/abs/1711.10640},
year = 2017
}